Suddenly we can see sunshine ahead for the Australian economy, or so it seemed yesterday.
Comments from the OECD and the IMF told us that Australia will have the best performing economy among he major economies this year, with an almost V-shaped rebound next year.
Growth will be better, unemployment will be lower than expected, if the forecasts are anywhere accurate, which will be very good news, inflation will be down.
Both reports fleshed out what the Reserve Bank has been telling us for the past few months and aiming at with its current stance on interest rates: it will cut if it can because of falling inflation, not a tanking economy.
And many of the media and business economists who doubted the RBA’s line, forgot their scepticism and wrote up the good news.
The IMF, OECD and World Bank all suggest that the world economy seems to be steadying; the US Federal Reserve suggested as well that the American economy was steadying as well, but all four organisations pointed to an extended period of low growth, low inflation and rising unemployment.
That confronts Australia, but our slump will be extremely shallow, the recovery will be strong compared with the rest of the developed world, unemployment won’t be as bad as previously thought, and Australia’s finances won’t be as badly wounded by the credit crunch and the cost of stopping the rot, as those in other markets will be.
That’s something to keep in mind as we encounter the almost certain flow of bad news later this year as jobs are lost.
The IMF said Australia’s economy will shrink 0.5% this year, compared with a 1.4% drop predicted in the Fund’s April Global Outlook.
The Fund said it saw the economy growing by about 1.5% in 2010, compared with the April forecast for growth of 0.6%.
The OECD said growth will slow to a contraction of 0.5% this year, before rising to around 1.4% next year.
In the domestic economy the swing will be more dramatic.
The OCED sees domestic demand falling by a solid 2.1% this year, before bouncing to a growth of 1.4% in 2010.
Now that’s hardly anything to write home about in a normal year, but in the present and projected context, it will be a solid recovery.
In fact it represents a very sharp improvement from earlier this year and all the doomsayers who greeted the IMF’s April forecasts have fallen strangely silent.
And it seems that debt and the Federal deficit may not be as bad as forecast in the recent 2010 budget papers.
The improvement in unemployment is dramatic, according to the OECD’s forecast.
It now won’t be anywhere near the terrible forecasts some economists have made of 9% to 10% by next year. The OECD sees it reaching 7.7% next year, which is much less than the recent budget forecasts.
No wonder Federal Treasurer, Wayne Swan was confident in a statement yesterday.
"The IMF has delivered another clear endorsement of the Rudd Government’s actions to combat the global recession in its Article IV consultation statement released today.
“This statement provides yet more evidence that the Government’s policy efforts are working to position Australia as among the strongest economies in the developed world."
Well it might have been nice from Mr Swan to acknowledge the contributions from the Howard/Costello duo, not to mention Bob Hawke and Paul Keating back in the 1980s and 1990’s, to Australia’s current economy position.
They built the foundations for the Government and the Reserve Bank to build on; it’s now up to the Rudd Government not to ruin the future.
Both the OECD and the IMF singled out the way the Government and the Reserve Bank had moved quickly to stimulate and protect the economy with spending packages and very rapid rate cuts.
The IMF said :
"We welcome the quick implementation of targeted and temporary fiscal stimulus.
"The stimulus provides a sizeable boost to domestic demand in 2009 and 2010 that will cushion the impact of the global recession.
"The transfers to households had an immediate impact on activity that helped underpin confidence. The increase in public investment will continue to support activity in the near term, while addressing infrastructure shortfalls."
"The downturn has been milder than in most other advanced countries. This is because of strong commodity exports, a flexible exchange rate, a healthy banking sector, and a timely and significant macro policy response."
The IMF also noted the commitment to return the Budget to surplus, saying that "few other advanced economies have adopted such a clear commitment."
The OCED went further, suggesting more spending could happen and monetary policy could be further eased.
"To mitigate the impact of the crisis, the authorities need to maintain the expansionary thrust of their economic policy. Monetary policy could be loosened further.
"The infrastructure development programme announced in the 2009–10 Budget is welcome and should strengthen fiscal policy impact.
"To enhance future growth potential, the reform of infrastructure regulations should continue, in particular to ensure regulatory streamlining bet
